 Hi, this is Professor Joel Friedman, the University of Massachusetts Department of Economics, and we're here to talk about the elasticity of demand. The elasticity of demand is the relative change in the quantity demanded for a change in price. The percentage change in quantity divided by the percentage change in price. This tells you how responsive demand is to changes in price. Some things have very high elasticity. Milk from Cumberland Farms. You raise the price a little bit? I stop buying milk, or maybe I start buying milk from Stop and Shop instead of Cumberland Farms, or from some other store. My puppy. Very inelastic demand. Even if my dog becomes more expensive because he needs his teeth cleaned, or God forbid he broke his leg or something, I'll still keep him. It would take an enormous change in price before I would put my dog down. Don't worry, Davos, we're keeping you. Demand elasticity depends on two separate things, and it's important to distinguish them because textbooks often slide over them. First, can you do without the service? Can you do without puppy love? No way. So you have very low elasticity of demand for your puppy. Second, can you find another source for this service if the price increases? For example, you may need gasoline, but that doesn't mean Cumberland Farms can raise its prices without changes in demand because you'll just go and get the gasoline from some other place. You may need the love of a pet, but that doesn't mean you're going to keep the dog because you could get a cat who will love you. Fat chance. High and low elasticity of demand. Generally speaking, inelastic demand, very steep, up and down demand curve. Prices change a lot, don't change quantity. Elastic demand, flat demand curve. Once your price is even a little bit, your consumers abandon you and go elsewhere. Remember, two separate factors. How necessary is the product? How easy it is to find the substitute? Some things are absolutely necessary, but easily substitutable. Penicillin, for example, from Merck. Merck makes penicillin. You need penicillin. You get syphilis? I'm not going to talk about how you got it, but be careful. Use condoms and then get penicillin, but you don't need to get it from Merck. Merck raises its prices at a penny. You just go to somebody else. Merck penicillin is a highly elastic demand even though it's a necessary product. Donuts from Dunkin Donuts. Do you need donuts? For that, donuts, obviously, they're not necessary, but you really enjoy them and Dunkin makes relatively good donuts compared to most other commercial donuts. Though if you ever visit Amherst, go to Henneans. They have the best donuts. Dunkin Donuts are in relatively inelastic demand because while they're not necessary, it's hard to find the substitute. So eat donuts, don't get STDs, and thank you. Have a nice day.